Association Benefits
Small Business Resources
Email Newsletter


Starting a Business

Small Business Accounting


Setting up an accounting system will help you create and manage your budget, set your prices, collaborate with suppliers, and file your taxes. Small business owners with a background in finance or a penchant for computer programs like QuickBooks can usually run this aspect of the enterprise themselves. Others may elect to hire an accountant if they are not 100 percent confident in this realm or if they would like to free up time to focus on other facets of the business.   

 

Accounting Periods: Calendar Year, Fiscal Year, Short Year

Every business and individual taxpayer is required by law to determine what taxes are owed each tax year. You may choose to file every “calendar year” (12 months, starting January 1st, ending December 31st), every “fiscal year” (12 months, ending on the last day of any month except December), or on a “short year” period (if you are just getting started or if you change your accounting period). Many businesses find it is much easier to choose a fiscal year ending on March 31st, June 30th or September 30th, which gives them enough time to reconcile their corporate numbers with the quarterly payroll and sales tax returns.

 

Accounting Methods: Cash Or Accrual?

  • Under the cash accounting method, you report income on the tax year you receive it and deduct expenses in the year you pay it. This is the most common method for small businesses, especially if you take in a lot of direct payments like credit cards, cash or checks, because it is more straightforward to calculate.
  • Under the accrual accounting method, you report income in the tax year you earn it, regardless of when payment is received and you deduct expenses in the tax year you incur them, regardless of when payment is made. This method is common for larger businesses that use invoicing and deliver products or services before receiving payment. With this method, you need to keep track of “accounts payable” and “accounts receivable” records.     

 

Components of an Accounting System

The hub of your accounting system will be the General Ledger. Within the general ledger, there are many sub-ledgers that keep track of specific fields. The sub-ledgers then send summaries to the General Ledger that will ultimately aid you in your decision making. For example, a sub-ledger will record all the credit sales and cash payments received; the net total will then go up to the General Ledger, which will, in turn, increase or decrease accounts receivable, increase cash on hand and decrease inventory.


Organizing Your Accounting Department

Ideally, you will want to organize your accounting department with each function assigned to an individual (rather than have just one person doing everything). Having too few people in your department invites trouble like fraud and embezzlement. You’ll need to assign people to cover sub-ledgers like:

  • Accounts Payable
  • Accounts Receivable
  • Computer Accounting Systems
  • Cost Accounting
  • Fixed Assets
  • Internal Accounting Control
  • Inventory Control
  • Monthly Reporting
  • Order Entry
  • Payroll

 

Choosing Accounting Software

You will also need to select the right accounting software to manage your business records. QuickBooks Pro is, by far, the most popular and user-friendly accounting software with payroll and cloud computing options. Sage Software’s “Simply Accounting” and “PeachTree Complete Accounting” are two other well-known and well-respected programs for small businesses. Cougar Mountain Software and MYOB Accounting are user-friendly for new enterprises as well.   

 

 

Previous Article | Next Article | All Articles | Start a Business

 

Related Articles:
IRS: Tax Years
IRS: Accounting Periods and Methods
My New Company: Accounting & Financial Management
INC: How To Choose Business Accounting Software


Small Business United Insurance Policies are Managed by ETMG, LLC, License #1544170.
Copyright 2012. Small Business United. All Rights Reserved.